Two pieces of economic news have come to our attention recently. Regrettably, one is bad, and the other – even worse.

After more than two years of deflation, now Bulgaria is looking at a healthy inflation that some have very much been looking forward to. Yet it is so high that there is absolutely no question of any positive effects of the rise in prices, in point of fact, it poses a threat to the purchasing power of the population. Because inflation in Bulgaria has picked up speed, reaching 3.5 percent, a 5-year record high. This tendency even spells a risk of failing to meet one of the criteria for the country’s coveted entry into the Eurozone, which has, thus far, not been a problem for Sofia.

The inflation is due to domestic as well as external factors. Among the domestic factors, the one that is having the biggest impact on prices is the growing purchasing power of Bulgarians, whose salaries and incomes go up by close to 10 percent a year. More money in the pocket means more consumption. In business, this spells an excess of demand over supply. Out of the external factors, the one contributing most to the inflation growth are the rising prices of fuels. There is one more point of concern that should not be overlooked – the incomes of Bulgarians are increasing more slowly than their expenditures. The average per capita income of a household member during the second quarter of 2018 was 754 euro, and compared to the same period of 2017 the increase is by 8.7 percent. At the same time expenditures stand at 680 euro, or an increase of 11.4 percent compared to the same quarter of 2017, National Statistical Institute data indicate. This means real income is growing at rates faster than inflation, and that allows for more consumption. And one more thing – retail prices in Bulgaria have remained at levels considerably lower than the European average, and with the deepening of integration within the EU, they cannot but go up gradually. Ultimately, it can be said that there is still a sufficient amount of free cash for a further boost to consumption, i.e. to consumer inflation, at least until the price levels in the more advanced part of Europe are reached.

The second piece of bad news that has come to our attention concerns the, as yet, not overly worrying slowdown in the economic growth rate, which reached 3.4 percent over the second quarter of the year, the lowest since 2015. If there is one thing that is reassuring, it is that there is any growth at all. Cold comfort for a country like Bulgaria, which is so far behind in its economic development compared to the industrialized nations, that many economists are saying that to be able to close this gulf in the foreseeable future, the Bulgarian economy will have to grow by around 10 percent annually for decades. But economic growth rates are not the only cause for concern, one more concern being the engines of economic expansion. Its motor is domestic consumption, and domestic consumption does not lead to the creation of more added value, as do capital investments, it has a short-term economic effect and is highly unstable and unpredictable. Until recently the government’s economic experts were saying that this year will see a peak in GDP growth, and that there even exists a risk of overheating of the economy. Yet, at this time, such predictions are highly suspect, because of what national statistical data show, but also because of phenomena we are seeing in some other countries of Central and Eastern Europe. In Poland and the Czech Republic economic growth has slowed down considerably, with Bulgaria giving every sign it will follow suit.

English version: Milena Daynova